What we do and do not know… so far
Today we conferenced in with Andrea Reynolds the founder and CEO of Swoop, a leading UK funding platform, and Helen Cockles the COO of Futrli, the UK’s leading cashflow forecasting and reporting software, to get the most up to date information on the government’s most recent scheme for funding small businesses through the current crisis.
What we already knew
The 'Bounce Back Loan' is a fast track loan for smaller companies. As a default it is interest free for 12 months and comes with an initial 12 month capital repayment holiday.
It is re-payable over six years and companies can apply for a loan in the amount of 25% of turnover up to a maximum of £50,000.
To qualify the borrower must satisfy the following criteria:
- Be UK based
- Negatively impacted by COVID19
- Not be an undertaking in difficulty as at 31st December 2019
What we learned
The discussions around applying for the loan and accessing funds came with boiler plate warnings and these were as follows:
- The scheme was announced on 27th April and banks are being asked to implement the solution by the 4th May, just one week later. A new financial product typically takes around 12 months to develop and bring to market. As a result there will most certainly be a disconnect between the government’s marketing ploy and the banks’ ability to react and implement.
- So whilst the official open date for small business owners to apply for the bounce back loan is Monday 4th May, it is very likely that many traditional lenders will not be ready to start processing applications and depositing funds inside the 24 hours promised by the government by Monday.
- Banks are in fact in talks with the treasury today seeking indemnities from future regulatory fines and law suits that may arise as a result of being forced to lend outside their normal obligations to do so responsibly.
- It seems perverse that at a time when the UK government has abandoned the classical liberal traditions of the nation and opted for central planning that in this instance deregulation is the desired solution.
- Whilst the government will be relying on traditional lenders and the big banks to support the scheme, there seems to be a feeling that alternative lenders are better placed to react to the demands of the consumer and may well be able to make offers and deposit funds in a more timely and responsive way.
What will you need to process an application
It is unchartered territory where brokers, banks and consumers are currently doing their best to read between the lines but as an estimate here is what you might expect:
- No financial forecast required (unlike with CBILS)
- A description of the business
- A description of how it has been and will be impacted by COVID19 as the nation moves forward
- Statutory Accounts and / or up to date Management Information
- Banks Statements
How will banks arrive at your turnover figure?
This has not been specified but it is likely they will use turnover up to 31st December 2019 or prior year statutory accounts.
Can you apply for multiple entities?
Yes, as long as those entities are not part of the same group.
Do existing loans make you ineligible for the bounce back loan?
This has not been specified but the scheme is not intended to be used by companies needing to refinance.
What is 'an undertaking in difficulty'?
In all likelihood banks will be looking at the company’s balance sheet to assess whether at 31st December 2019 the company has a net asset position and could thus be judged as solvent.
You will be asked to self-certify that there were no events after 31st December that would change this position.
I had a negative balance sheet in December but it’s positive now, can I claim?
This has not been specified although it would be reasonable to assume that banks may choose to strictly adhere to the criteria for fear of not being guaranteed or indemnified by the government if they stray outside of the defined criteria.
This will in the end come down to the lender.
Can I apply for the bounce back loan and CBILS?
In fact the introduction of the bounce back loan means that you can now access up to £300,000 in loan finance without needing to personally guarantee the debt.
Under the CBILS scheme you can access up to £250,000 without a personal guarantee and the bounce back loan can top that up by an additional £50,000 PG free.
If you are one of the lucky few to have received a loan under the Business Interruption Loan Scheme you may find your bank call you to refinance £50,000 of it under the bounce back loan to reduce their own exposure to risk.
One top tip
If you are not planning to use your accountant, advisor or broker to apply for these loans and are going it alone then a focussed and patient approach will give you the best chance of success.
Do not apply to half a dozen lenders at the same time.. Each of them will perform a hard credit check and reduce the credit score of the company to such a level that you will not get borrowing.
Apply to one lender wait for a response and then a few weeks later apply to the next.
Avoid damaging the credit rating of your business and give yourself the best chance at success.